November saw a rise in existing-home sales, and First American’s most recent Existing-Home Sales Outlook Report predicts another increase before year’s end. Although activity is still far below pre-pandemic levels, this slight upward trend indicates that the housing market is gradually thawing. More sales activity is being encouraged by a number of reasons, but it is still being impeded by others.
Even if mortgage rates don’t decrease much from this point on, affordability is improving, which is crucial. Affordability rose to its highest point in over three years, according to the most recent Real House Price Index (RHPI).
The majority of markets had yearly increases in affordability, indicating widespread improvements. Since April 2025, income growth has outpaced the appreciation of housing prices, which is progressively improving the monthly payment calculations of potential buyers and making it possible for more households to qualify at the margin. Affordability is still not “easy” in absolute terms, even though the trend line encourages more transactions.
Inventory is cooperating at the same time. Active inventory is already higher than it was a year ago in several markets, which is a significant change following years of incredibly limited availability. More listings increase options, lessen buyer fatigue, and facilitate the closing of deals, particularly for purchasers who have been willing but unable to locate a house that meets their requirements and financial constraints.
“You can’t buy what’s not for sale, so cautious optimism for 2026 hinges on a rising tide of more ‘For Sale’ signs helping spur a few more sales,” said Odeta Kushi, Deputy Chief Economist at First American.
When the market gives demographic dynamics a little oxygen, the demand manifests itself because demographic trends constitute built-in demand. A lot of prospective first-time millennial homeowners have been waiting for things to get better, and even little increases in affordability can encourage that demand to return to the market. Customers who were turned off by a lack of options may re-engage if inventory keeps growing, helping to turn pent-up desire into actual transactions. Additionally, having more options can mean the difference between waiting and moving for households on a life-event timeline.
Ongoing Uncertainty and Lock-In Effect Continue to Limit Trends
Although they are tightening, the “golden handcuffs” of cheap mortgage rates are still in place, according to Kushi. Selling frequently entails trading a low payment for a higher one—enough to keep many “optional” sellers on the sidelines and limit turnover, even as demand gradually improves—because, according to the most recent NMBD third quarter data, almost 79% of mortgaged homes still carry a rate below 6%. However, rates are not the only factor that influences home decisions.
Life events like new employment, family, downsizing, and retirement sometimes force people to relocate, and these necessities may eventually overcome the salary difference. The lock-in effect is progressively lessening because of this. The market’s reliance on ultra-low-rate mortgages gradually decreased in 2025 when, for the first time since 2020, the percentage of property buyers with rates above 6% surpassed the percentage with rates below 3%.
Another obstacle is uncertainty. Families don’t need complete clarity to purchase a home, but important decisions might be postponed due to uncertainties about the economy, inflation, and interest rate trends, especially when monthly payments are already high. during 60% of respondents to the most recent University of Michigan monthly consumer poll predict that unemployment will continue to rise during the coming year. Because of this, existing-home sales may appear to be increasing one month and then stagnate the next. This is because the market reacts swiftly to shifts in mood and rates, and volatility can cause activity at the margin to freeze.
The most reasonable hope for the future is ongoing, gradual advancement rather than a breakthrough. Because wages are contributing more while housing price growth remains modest and inventory is beginning to rise from historically low levels, affordability is improving. However, high rates and persistent lock-in mean turnover will probably stay below what we would call “normal,” keeping the market in a gradual, stop-and-go recovery as opposed to a robust resurgence.
Even if rates stay high, more life-event moves—new jobs, new families, downsizing, and upsizing—should occur as affordability and inventory progressively improve. Since you can’t purchase anything that isn’t for sale, cautious optimism for 2026 depends on an increasing number of “For Sale” signs encouraging a few more sales.
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